Building the Ecosystem for Digital Banking to Flourish

How Singapore is reinventing banking in the digital era

Lance Homer

The banking scene in Asia-Pacific has evolved rapidly in recent years. The proliferation of smartphones and high rates of internet penetration are reshaping the way banks service their customers in the region. This comes as new digital banks emerge to challenge traditional banks in building better digital channels.

For instance, digital banks are able to offer customers something traditional banks with legacy IT systems struggle to deliver: banking built for the digital age, from deposits and loans to asset management and insurance, all available 24/7 thanks to a high degree of automation. Digital banks are also able to capitalize on the opportunities provided by the rise of Banking-as-a-Service (BaaS) to build strategic partnerships.

In this two-part blog series, we will explore why an ecosystem approach is integral to the success of Singapore’s digital banks, as well as why digital banks in Singapore should focus on customers as the priority in order to succeed.

With the current pace of adoption, up to 1/3 of Singaporeans could have a neobank account by 2025.

Building a Customer-Centric Digital Banking Ecosystem in Singapore

According to Kapronasia, being in an ecosystem can further enhance neobanks’ digital agility by allowing them to select best-of-breed solutions and integrate them quickly.

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Defining a made-in-Singapore value proposition

As a key Fintech hub in the region, Singapore is one of the focal points of Asia’s digital banking evolution. With the city-state set to award up to five digital banking licenses by end of 2020, Singapore is inching forward in the region’s digital banking race.

However, Singapore has taken on a slightly different approach compared to their counterparts across the region. Where many have leveraged digital banks to focus on financial inclusion, digital banks in the Lion City are focusing on driving innovation instead.

In a chat Equinix had with Mr. Sopnendu Mohanty, Chief FinTech Officer at the Monetary Authority of Singapore (MAS), Mr. Mohanty highlighted the significant role that Fintech players play in furthering innovation within the Singapore banking landscape. By creating the opportunity to bring together traditional financial services firms and other tech or telecom companies, Singapore’s Fintech players act as an important catalyst for financial innovation — helping the city-state maintain its competitive advantage as a regional fintech hub.

This is also why the BaaS model holds such appeal to financial institutions. It offers an opportunity for institutions of all sizes – from incumbents to new challengers, from virtual banks to Fintech players – to leverage BaaS as an enabler, allowing them to connect with each other and build ecosystems of partnerships that will help advance their propositions.

Within these emerging ecosystems, digital banks are likely to be colocated in the same data centers as their ecosystem partners. This colocation also means that digital banks can benefit from enhanced interconnectivity, while surmounting the security challenges and slow transmission speeds that come with traversing the internet. Ultimately, this helps create a better customer experience, offering the customer a more secure, efficient and higher value service. As such, the ability to leverage BaaS and build a strong, secure ecosystem of partners will be integral to the success of Singapore’s digital banks.

Digital banking is in demand

There is clear demand for digital banking in Singapore. By one estimate, this demand is such that approximately 20% of the population – numbering about 980,000 people – already own and operate an account with a neobank. Though these presumably involve neobanks located outside of the city-state, with the MAS yet to issue local digital bank licenses, this statistic already speaks to the burgeoning demand for digital banking.

Unsurprisingly, youths between the ages of 18 and 24 are the most enthusiastic about digital banks, with 25% having an online-only account. With the current pace of adoption, up to one-third of Singaporeans could have a neobank account by 2025.[1]

This potential for robust digital banking in Singapore is corroborated by multiple other estimates. Visa’s most recent survey[2] of consumer payment attitudes in Singapore, conducted in October 2019, found that 65% of Singaporeans would consider opening an account with a neobank. With one fifth of respondents willing to shift all of their banking from an incumbent to a digital bank, and more than half (63%) of respondents also said they were willing to bank with new start-ups – the ample demand to be leveraged in this arena simply cannot be ignored.

These growing demands are also shifting the entire banking process to one of open collaboration across a digital ecosystem of partners, and driving demand for interconnection – the direct and private exchange of traffic between key business partners. This increase in demand is further reflected in Global Interconnection Index (GXI) Volume 4, a study published by Equinix, which projects interconnection bandwidth for Financial Services & Payment Providers to grow at 33 % compound annual growth rate (CAGR) between 2019 and 2023 in Asia-Pacific.

The ecosystem opportunity

The shift to digital banking will continue to gather momentum even as the ongoing pandemic recedes, and traditional banks are likely to enhance their digital offerings to capture as large a share of the market as possible.

However, it is important to see the pandemic not as the key enabler of financial digitization, but a catalyst for a trend that had already gained momentum as digital banks continue to disrupt the traditional banking industry with ecosystems of partners.

The digital ecosystem approach is set to revolutionize the way Singaporeans bank, by allowing banking players and their customers to access a wider array of services that are more personalized than at legacy financial institutions. At the same time, technologies like big-data analytics and artificial intelligence will be able to further enable digital banks to serve customers in a more targeted manner – whether it be building credit profiles, developing specific products for them, or enhancing account security.

In the second part of this blog series, we will be delving into why digital banks should pursue a customer-centric approach in order to stand out from its competition.

To learn more about how Singapore could act as a catalyst for financial innovation, read our latest read our whitepaper “Building a Customer-Centric Digital Banking Ecosystem in Singapore.”

[1] Richard Laycock, “Digital banking adoption in Singapore,” Finder.com, https://www.finder.com/sg/digital-banking-statistics

[2] Visa, “Two in Three Singaporeans Interested in Using Neobanks: Visa Study”, https://www.visa.com.sg/about-visa/newsroom/press-releases/two-in-three-singaporeans-interested-in-using-neobanks-visa-study.html

Lance Homer
Lance Homer Global Head of Strategy for Electronic Payments